Prosper Australia

Gavin Putland

The ACT’s Land Rent Act, with promised savings of 79% compared to the standard mortgage-based system of home ownership, took effect on July 1. This is an innovative housing affordability policy. Here’s what I wrote about it a week before it became law.

I make the following assumptions (which do not seem to be spelt out in the Bill):

• that the capping of increases in rent will be apportioned to some measure of the general level of wages;

• that a land rent lease will be granted without any up-front payment other than the first rent instalment;

• that if a land rent lease is transferred, the transfer price (if any) will be included in the single price of the “house” or “home”;

• that the proposed extension of the scheme to lessees on higher incomes will be accomplished by repealing or amending paragraph 5(2) of the Bill.

From my reading of the Bill, I understand as follows:
(more…)

Leading Georgist author Fred Harrison was interviewed on the Renegade Economists last week regarding his new book The Silver Bullet.

Download his 16 minute interview covering issues such as Botswana’s success, a critique of Jeffery Sach’s Resource Curse theory and an overview of colonial motivations. Essential listening/ reading for those genuine in addressing the Millennium Development Goals.

Make sure you sign up to receive the Podcast to the Renegades delivered to your computer each week.

Hear the author Fred Harrison interviewed on the Renegade Economists tomorrow. Make sure you are podcasting us so you never miss the show.

Fred Harrison’s new book levels some very serious charges at the current leaders of the poverty industry.

The good intentions, the money, the rhetoric, the pity and the media histrionics are but a pinpricks to a world rampaging monster. They say there is no silver bullet.

It takes Harrison’s razor sharp pen few words to zero in on the limitations of Joseph Stiglitz, Naomi Klein and Jeffrey Sachs.

Economics is a damaged social science because its exponents fail to work with comprehensive models of the real world.

As our understanding of the Silver Bullet grows, so does respect for the level of investigative reporting in the very readable 179 pages. Insights to Zimbabwe’s plight, China’s growing elite and even the Kalahari Bushmen are viewed through the lens of land rights and the reform needed to encourage their ‘creative energy’. The reports Harrison unveils give us hope that academics are wary of rent seekers.
(more…)

The tax unit for an asset-holding tax should be the asset!

Gavin Putland

Recommendation 10 of the Draft Report of the IPART Review of State Taxation suggests “changing the tax unit for land tax from joint ownership to the individual” as a means of reducing complexity caused by aggregation of site values.

That raises the question: As land tax is a tax on site values, wouldn’t it be simplest if the tax unit were the site? Our first submission to this Review proposed a mechanism which would indeed make the tax unit the site, without creating winners and losers in the transition to the new system. With a little elaboration, the transitional arrangement can account for the effects of aggregation before doing away with it.

Origin of the problem

Because the acquisition of major assets requires income in excess of necessary consumption, the distribution of major assets, including land, is more unequal than the distribution of income. And because land tax (in NSW and other Australian jurisdictions) exempts owner-occupied residential land, the ownership of taxable land is more concentrated than the ownership of land in general. For these reasons, land tax would be strongly progressive even if applied at a flat rate with no threshold. The purpose of a threshold is not so much to make the tax more progressive as to limit the number of taxpayers, especially among swinging voters. But a threshold, by itself, creates the opportunity for landowners to minimize tax by holding a large number of low-valued sites, this strategy being especially viable for urban speculators who “buy at the fringe and wait”. To close the loophole opened by the threshold, site values are aggregated before the threshold is applied.
(more…)

Desperation in the housing market is leading to varied responses. The latest the Age has promoted is the Container Home phenomenon. Miners earning $100,000 have been forced into them in Port Headland and other fast growing mining communities. Now a company is promoting shipping containers on the eastern seaboard as a means to solving the housing crisis.

Nice try. However, it requires the land to place them on. Whilst public lands could be used, why not free up the 119,623 unoccupied properties identified in the 2006 Census?
(more…)

Fred E. Foldvary

In economics, the waste of resources caused by a tax has two names. One is the “deadweight loss,” a loss to the economy with no offsetting gain. The other name is the “excess burden,” since the burden on the economy is in addition to or in excess of the tax payment.

For example, suppose a bookstore has 20 employees, and has to pay a taxes on the payroll as well as sales taxes on the books and taxes on its profits. These expenses are on top of the costs of the inputs that would be there aside from the taxes: the labor, the space, the books, and shelves. The store has to add the tax expense to the input expense, and pass the tax on to the customers. The higher price of books paid by the customers makes them buy fewer books, so the books that would have been produced and sold and enjoyed do not get made. This is a waste of resources, as the customers will shift to less valued uses for their incomes. The overall deadweight loss reduces production, investment, and economic growth.

The amount of deadweight loss depends on how responsive the customers are to the change to a higher price. If they cut back a lot on their book purchases, then there is a greater excess burden. The overall excess burden of taxation in the USA has been estimated at about $1.5 trillion dollars, more than 10 percent of total output. So roughly, our standard of living would be ten percent higher if the deadweight loss were eliminated.
(more…)

Today’s Age Artice Higher Rentals Seen as Spur for Investment by Chris Vedelago is a good prompter to peer behind the curtains of rental yield.

Despite the headline quoting a new report saying that gross rental yields are at an attractive 5.5% for investors, CommSec’s Craig James sums it up nicely:

“Investors are concerned just as much about getting a good capital return over time, and many are prepared to endure relatively low (rental) returns if the end result is higher capital gains down the track,” he said.

(more…)

Interesting developments in Canberra can be tracked via this ABC report:
Buy the house, rent the land: ACT’s new housing plan.

As many will know, it’s not the first time this has occurred. Read one of our most popular web pages: Canberra’s Land Leasehold system (1910 - 1971).

What else need we say?

Understand why making ends meet is such a challenge and what we can do about it.

Robert J McAlpine, President Prosper Australia

The time for thinkers on economic matters has come! By neglecting the field of property valuation, mainstream economists have missed some of the most important factors in market price determination

There exists an almost complete chasm of two closely related economic considerations. One dealing with the abstract, which can vary between money market commentators – the other is concerned with the measurement of the market and its value in the marketplace. Each has developed contemporaneously but along separate and independent lines. Their origins were different, one – philosophical speculation, two - judicial and administrative necessity - land valuation backed by the land valuation courts.
(more…)